A Search-Matching Model of the Buyer--Seller Platforms

Kong-Pin Chen and Yen-Chi Huang

CESifo Economic Studies, 2012, vol. 58, issue 4, 626-649

Abstract: Based on the frictional matching framework, the article provides a theoretical model for a specific type of two-sided platform: the buyer--seller transaction platform. In the model, the number of participants and the source of network externalities are endogeneously determined. The platform is shown to exhibit both positive cross-group and negative within-group network externalities. The optimal pricing of the platform depends not only on the cost of providing service and the benefits of the participants, but also on how the marginal entrant (either a buyer or a seller) affects the matching probability. Since the sellers can shift the burden of entry fee to the buyers, the platform never subsidizes the sellers. (JEL codes: L11, D83) Copyright The Author 2012. Published by Oxford University Press on behalf of Ifo Institute, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

Date: 2012
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Working Paper: A search-matching model of the buyer-seller platforms (2011)
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